Crawl Across the Ocean

Tuesday, June 21, 2011

92. Information Sharing

Note: This post is the ninety-second in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

A number of posts ago, I discussed an essay by Joseph Heath in which he posited that there are 5 distinct types of cooperation: Economies of scale, trade, risk-sharing, information transmission, and self-binding.

This week I wanted to go into a bit more detail on the differences between information transmission and what we normally think of as trade, using the essay, "The Next Economy" by Brad Delong and Michael Froomkin as a starting point.

Delong and Froomkin set out 3 primary differences between information and more typical physical goods:

1) Information is non-excludable - Once a piece of information exists it is hard to control who has access to it (recall the friends episode where Chandler and Joey try to figure out the path that the information that Ross slept with someone else will take to get to Rachel). The primary implication of non-excludability is that goods might be under-produced (as compared to the socially optimal level of production) because people won't be forced to pay a price for the information that is commensurate with the value that information has to them (i.e. somebody might be willing to pay a high price for the latest Sufjan Stevens album, but instead just download a free copy off the internet).

Society has generally responded to this lack of excludability by trying to restore it via copyright and patent laws that go after free riders.

As Delong and Froomkin note, this is a balance between the costs of enforcement and the reduction in information sharing on the one hand, vs. the added incentives to generate valuable information on the other.

2) Information is non-rival - You can't really transfer possession of information from one person to another, you can only share it. Unlike, say, a chair which only one person can sit on at a time, an effectively infinite number of people can have access to the same piece of information.

As the authors say, "the existence of large numbers of important and valuable goods that are non-rival casts the value of competition itself into doubt."

In a goods market, when sellers compete on price they allow more people to benefit from the product being sold by reducing the price to their marginal cost. But with non-rival goods like information, the marginal cost is zero and if competition was to drive the price down to 0, the producers would go out of business. In this environment, competition might end up taking less beneficial forms than lower prices (e.g. methods to lock customers into your product and prevent them from having access to other providers).

3) Transparency: When you're buying a chair, you can usually get a pretty good idea of the quality and comfort of the chair before you buy it. But with information, this is much more difficult. If you don't have the information, how can you judge its value. If you do have the information, why would you pay someone else for it. Information is the side product that allows you to value other products before you buy them, but it is hard to make it work on itself.

---We can see that the unique nature of information undermines some of the traditional commercial virtues that make up the commercial syndrome.

The benefit of competition is reduced with information. Both from economies of scale (people are better off browsing a single large library than they are searching through a million little ones.) and from the hazards of price competition in an environment where marginal costs are zero.

The (financial) incentive to innovation and industriousness is lowered by the lack of rewards that may come for your efforts.

The benefit of being honest is less when it is difficult for people to tell ahead of time if you are lying or providing a poor quality product.

Respect for contracts is undermined by a legal system that places artificial restrictions on sharing of information that reduce overall social welfare and technology that makes evading those restrictions easy for anyone to do with little consequence.

---On the other hand, some commercial syndrome elements seem even stronger when it comes to information - shunning force makes even more sense when there is so little to be gained through the use of it (see the widespread disdain for industry groups that sue their customers).

Collaboration with strangers has flourished in an era of information transmission.

The quick transmission of information has led to a high regard (some might say too high) for inventiveness and novelty.

---With respect to the guardian syndrome, information does have some of the characteristics of public goods, meaning that there are social benefits to government ensuring there is adequate production of them. And indeed government funds most basic research and takes a major role in transmitting information (via education) to each generation of citizens.

But information sharing is no place for the use of force, or respect for tradition, and individuals and companies that spend their time in the world of information generation and transmission often seem just the opposite of stuffy government rules and procedures - so clearly information sharing is not a typical guardian activity.

---To be honest, I'm not sure quite what to make of information as an area of cooperation that seems to be distinct from both the traditional commercial syndrome ethics and from traditional guardian ethics. Maybe the unique nature of information demands its own set of ethics but the relatively new importance of information in the economy means that this has yet to be fully developed.

Tuesday, June 14, 2011

91. Another View on the Evolution of Cooperation

Note: This post is the ninety-first in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

Acemolgu points out that researchers often use coordination models to study the level of cooperation in society because these models allow for multiple equilibria - i.e. one with cooperation, one without1

"Why do similar societies end up with different social norms, and why and how social norms sometimes change? A common approach to answering these questions is to use coordination games, which have multiple equilibria corresponding to different self-fulfilling patterns of behaviour and rationalise the divergent social norms as corresponding to these equilibria. For example, it can be an equilibrium for all agents to be generally trusting of each other over time, while it is also an equilibrium for no agent to trust anybody else in society. We can then associate the trust and no-trust equilibria with different social norms."

As he goes on to point out, this isn't a very dynamic analysis, in the sense that it doesn't answer the questions of why or how we get from one equilibrium to another.

"Simply ascribing different norms to different equilibria has several shortcomings, however. First, it provides little insight about why particular social norms and outcomes emerge in some societies and not in others. Second, it is similarly silent about why and how some societies are able to break away from a less favourable (e.g., no trust) equilibrium. Third, it also does not provide a conceptual framework for studying how leadership by some individuals can help change social norms."

I didn't spring for the $5 required to download the full paper, but from the article it seems like one mechanism posited by Acemolgu for society to move from one equilibrium to another is if a 'prominent' person influences other people with their own behaviour.

"A particularly important form of history in our analysis is the past actions of "prominent" agents who have greater visibility (for example because of their social station or status). Their actions matter for two distinct but related reasons. First, the actions of prominent agents, impact the payoffs of the other agents who directly interact with them. Second, and more importantly, because prominent agents are commonly observed, they help coordinate expectations in society. For example, following a dishonest or corrupt behaviour by a prominent agent, even future generations who are not directly affected by this behaviour become more likely to act similarly for two reasons; first, because they will be interacting with others who were directly affected by the prominent agent's behaviour and who were thus more likely to have followed suit; and second, because they will realise that others in the future will interpret their own imperfect information in light of this type of behaviour. The actions of prominent agents may thus have a contagious effect on the rest of society."

What strikes me, coming back to the discussion about coordination, is all the words we have that, in the right context, mean the same thing: coordination, cooperation, correlation, collaboration, etc. Naturally, the trick with a coordination problem is to somehow coordinate everyone's behaviour. A hierarchical structure can create a monopoly in which one entity/person controls all, thus greatly simplifying the problem of getting everyone to sing from the same songbook. When putting leviathan in charge isn't feasible or isn't desired, then it becomes trickier to get a bunch of independent actors to coordinate on a particular outcome.

The 'prominent' person is like a soft version of the leviathan - not forcing everyone to go along, merely setting a good or bad example and hoping the ripples of that behaviour are enough to 'tip' society from one equilibrium to another. I didn't read the paper so I shouldn't really comment, but the notion that something like JFK asking people what they can do for their country is going to lead to a widespread change in behaviour seems hard to swallow for me. To me it seems more likely that levels of cooperation will be driven by a combination of history (as Acemolgu acknowledges) and changes in fundamental factors like technology (e.g. the medium is the message) and the natural environment (along the lines that I discussed in my last post).

***1Note: The Stag Hunt, that we discussed back here is an example of a game theory model with more than one equilibrium.

Tuesday, June 07, 2011

90. Peak Oil and the Commercial Syndrome

Note: This post is the ninetieth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

I guess it took a little longer to get back to the blog than I was expecting, due to post-vacation fatigue and busy-ness. It will be a short post this week as well, as I work my way back into the blogging flow.

While I was away, I was thinking about the relationship between energy supplies and the commercial syndrome. There is certainly causality in one direction as the innovation inherent in the 'Protestant Work Ethic and the Spirit of Capitalism' unlocked the energy in first coal, and then oil (not to mention natural gas, nuclear, hydroelectric, solar, etc.), as western civilization leaped ahead of the rest of the world in technological progress and material standards of living (i.e. comfort and convenience).

But what about the other direction? What if innovation fails in the face of our current energy requirements and the amount of energy available per person starts to decline for the first time in a number of decades/centuries?

The commercial syndrome is based around win-win transactions, but to keep the engine of trade and innovation going, new inputs are always needed. It seems logical to me that the commercial syndrome will flourish most when energy inputs are rising and economic growth is strong. In these circumstances, people are less concerned about distribution and more concerned with just improving their own lot.

But if I consider my limited knowledge of the history of civilization, the current strength of the commercial syndrome seems like a bit of an anomaly, with the guardian syndrome dominant in most times past (although part of that may just be that the guardians wrote more stuff down about themselves and built bigger monuments and so on).

I'd always figured that, even if we struggle to find enough oil or replacements for oil to avoid a downturn in our energy consumption, there's so much inefficiency in our economy that we should be able to manage reasonably well just by not wasting so much energy. But I worry that in an energy downturn, there will be less of a sense that all boats can ride a rising tide, and there may be a tendency to revert to guardian-style battles over distribution of the no longer rising tide of pies.

Looking at the rise in inequality and drop-off in wage increases that occurred in most Western countries around the time of the first oil crises in the 70's, it's possible that we've already been in this situation to some extent for decades now.

Anyway, this is just a train of thought and I certainly wouldn't come to any conclusions based on it, but I do worry that if we can't continually increase our energy consumption, we'll run into serious political problems that will aggravate what would otherwise be manageable energy issues. Certainly our non-response to the threat of climate change doesn't offer much reason for optimism in terms of how well we will deal with any sort of limitations on our insatiable quest for comfort and convenience.

Abstract

This Blog focusses primarily on commercial and government ethics as well as Canadian politics with digressions into international politics and anything else that seems relevant, interesting, amusing, or at the very least better than not posting at all